Seriously though, i've been working for a long time in the "corporate" world, and, have finally decided it's time for a change (reading joelonsoftware.com has really inspired me to take the next step). I've been thinking alot about the "Ben and Jerry" model Joel talks about in one of his articles, and, frankly, I really like the way Fog Creek has been put together: consulting to fund USEFUL development projects.

So, does anyone have any advice on things like:

1) What is the best way to incorporate for this type of business?
2) How do you go about getting consulting customers when you are starting out as a new entity?
3) Any other useful tips/advice from people's experiences.

Thanks,
Jim

Jim
Saturday, December 29, 2001

Hi Jim,

I think it's rather obvious. Register jimonsoftware.com and start cranking out insightful essay like there's no tomorrow.

Then.... you don't need to worry about finding customers, they will find you!

:-)

Seriously, I don't think there's a recipe you can follow here to cook up another Fog Creek Software. Joe has put a lot of efforts behind the scene. I can pretty much say that Fog Creek will not be 50% as successful as it is now if not for the effect of Joel's site.

To quote Mr. Greenspun, "Try to start another Arsdigita-without-Greenspun and see how far it can go."

To elaborate on this further, try to figure how Joel can recruit a top-notch programmer without his articles convincing the candidate that this is the right place to work.

The market is shit now, but superstar programmers are not any easier to recruit than it was 2 years ago.

Now tell me how you can cook as good as Joel without the core ingredient in place ?

It's not difficult to start a consulting firm. But as to start another "Fog Creek", it's a totally different story.

Anyway, I think everyone will be interested to learn about other's successful story.

Mac
Saturday, December 29, 2001

Yeah.. I wasnt implying on modeling it after Joel on Software, I guess general advice on starting a consulting firm is what I was after.

Good points though :)

Jim
Saturday, December 29, 2001

I would focus more on developing a product or service that people would pay you for rather than "starting a company". If you're able to conceive, develop, market, sell and support a simple product or service, I'd consider hiring you as a consultant. There are all kinds of things that a single person or perhaps a duo could create and deliver.

Some ideas:
1. if you're a designer, create 25 CityDesk templates and sell the package for 5 or 10 bucks.
2. create a CityDesk-based storefront builder (hint: use PayPal shopping cart for txns!).
3. develop discussion group software like this one or InfoPop. Figure out a twist or fee-enable it in some way.

Disclaimer: I work at PayPal so most of my suggestions entail taking services that are currently free today and PayPal-enabling them. PayPal's shopping cart and recurring payments make it dead-simple to creat ecommerce and subscription service by mere mortals. The beauty of PayPal is that it is not only easy for you to accept payments online, it's also easy for your customers to do so (e.g., if you developed a fee-based, CityDesk-based weblog service for other bloggers to use). Note: the same goes for CityDesk and other products which bring power and simplicity to wider audiences. Exploit them. Check out some examples: hotornot, livejournal, simfreaks, vshoppingcart, emartcart, ecartsoft.

Start small and grow. Have a plan for profitability from day one. Be creative. Try out different ideas. Contact me if you have any PayPal questions. Have fun!

Patrick Breitenbach
Saturday, December 29, 2001

Capitalisation.

If you haven't got it, you will fail. If not immediately then eventually. There's only so long that you can go on living on current income.

At the beginning you can put the foundation together of equipment and software relatively easily. You can maybe convert an employer into a client. If you have a marketable skill then you can hand over a large slice of revenue to an agent to place you as a contractor. You can become a portfolio person, selling different skills and experience to different people.

There is nothing wrong with any of that, and if you want a one man business with relatively little hassle then its a reasonable thing to do.

To build a company though is a different thing. You need a business plan, which is more than a spreadsheet showing expected income, costs and so on. It needs hard headed risk analysis. It needs you to ask the questions, 'Why will anyone ever buy from me?', 'Can I live off friends and contacts?', 'What does it take to sell something to someone that's never even considered buying?'

Its a hard lesson to realise that to make 15% more income as a company than you do as an individual its going to take another 3 people to manage it. The only way that happens is that you personally will earn 85% less, or perhaps nothing at all.

And those 3 people aren't selling, they are supporting the company. If you really want to grow you have to spend increasing proportions of revenue on sales and marketing.

Now there is a point at which this becomes sustainable and where the growth is sufficient not only for you to claw back your investment in forgone salary but to begin seriously earning. Where that point is for any particular business is one of those abstruse calculations which have a good deal of thumb involved in them. Part of that rule of thumb is to come up with some rules along the lines of.

Decide the minimum amount of overhead to place upon anything you deliver. This is even more important when its a service rather than a tangible product.

Never do favours. As soon as a client starts to drift their requirements rein them back in. If they want extras make sure they know they'll be billed.

Concentrate on efficient billing and recovery. The first person you hire should be responsible for organising the drudge of the business and of being the enforcer. If you separate billing from your own relationship with the client or customer you can deal with them without mixing up the money with the process.

Value the non technical people in your company just as highly as the technical, and promote that as a company value. In the end a company is not about writing software or consulting, its about doing something efficiently enough to keep on doing it.

Perhaps if I followed the above I'd be in a much better position :-), if you don't though I can give you another new list 'Downsizing to the Essentials'

Enjoy.

Simon Lucy
Sunday, December 30, 2001

I have much more limited aims. I want to start a company that will keep me in reasonable comfort.

For this reason, I find many of the issues regarding who to hire and what to look for are second-stage questions. These are the questions we get to when we have already established that there is a market.

... Or maybe not. The whole idea of venture capital is that we may need a million dollars to demonstrate that an idea is worthwhile.

... Or maybe not. My approach has been to demonstrate with my own efforts that I can provide a useful service that people will pay for.

I have been enormously helped on the way by forward looking software developers who believe as I do that code auditing can save them money. For many of them I have shown that it can.

Hiring people to work for you is what you can do when you have already succeeded, either in showing a need for your product or in raising venture capital.

Keith Paton
Sunday, December 30, 2001

I have similar, more limited, aims. More like having a one man shop. Along the lines of the (outmoded?) one man shareware businesses. Using the web to advertise and find new customers, I assume.

So, Simon, I'd be interested in hearing your "Downsizing to the Essentials".

Herbert Sitz
Sunday, December 30, 2001

I started my own business in June 2000 to develop and market business software for a particular industry. Initially I was contracting and working on my project on the side. In October 2001 I secured private investment and am working on the software full time. The business structure I established would have allowed me to continue consulting quite comfortably, but that wasn’t my dream.

Some of the things I learned:

- Money is the first issue. Read the “Ben & Jerry’s” article if you haven’t already. How you fund your company will have a large influence on your corporate culture. My options were:

1) Venture capital. No thanks. VCs are usually interested in hot new buzzword-laden ideas, not good ones. Just try explaining an organic growth model to someone looking to turn a profit in one year.

2) Contracting. I did this for 18 months, made a lot of money, and got nowhere on my software. People call contractors because they need code monkeys. Working 70-80 hour weeks leaves little time for your own efforts.

3) Private capital. Family, friends, relatives, or even small investment firms. It’ll give you the most control over your company, because these people (presumably) already trust you. Plus you’re not distracted by contracting gigs.

- Find a business advisor. Someone to give you advice, provide referrals, as well as act as a sounding board. Preferably a person who runs his own company (vice an academic teaching business classes). I was lucky in that a friend of the family fit this description. Try SCORE (www.score.org) if you don’t know anyone.

- Do not underestimate the amount of overhead that will be spent on managing your business. I spend as much or more time on non-technical business issues as I do on software development.

- Delegate business functions. You cannot do it all yourself and remain sane. Use people and services on a contract basis at first, to avoid having to deal with HR/benefits issues.

- Find a certified public accountant immediately. Most businesses screw up their tax filings in the first year. A CPA might also be able to help with your business formation paperwork. Use a CPA that also handles payroll issues, so when you’re ready to bring on people you can stick with the same firm and offload that responsibility completely.

- For business structure, I recommend forming a “limited liability company”, or LLC. Most states passed laws allowing LLCs, but some haven’t. The LLC has several tax advantages over a more traditional S-corp, especially if it’s just you in the business. When you’re starting out it’s all about the tax write-offs. Email me if you’d like samples of the paperwork.

- Read Joel’s archive. Twice.

- Be ready to work and make personal sacrifices. The next few years will most likely be very lean. I took a 75% pay cut and sold my condo in Atlanta to try to make my business work. You must have dedication in spades.

- Maybe this sounds like a lot. Allow yourself the possibility that you’ll grow into the responsibilities of the position.

Hope this was of some help. Feel free to email me with questions.

Brandon Knowle
Sunday, December 30, 2001

I was the first employee of a startup that did consulting to raise money. After five years I gave up and moved on. Maybe some of our successes and mistakes will be enlightening. I was an outsider looking in on the business side of things.
Consulting is a great way to raise money. We partnered with a company who wanted out product, and we sold a variation of the same product. We also did a few side projects. As Brandon said, when you consult, it takes a lot of time from what you really want to do.
The partner company was supposed to do marketing and sales. That was a terrible idea. Having an exclusive sales and marketing contract meant we could not control our own destiny. Make sure you can get out of any sales contract for non-performance, or sell in Europe or something. We could not sell through any other channel, and their sales people did NOT care. If you are technical, you must pay attention to marketing and sales. Never, ever believe "If we build it, they will come".
Organizing as an LLC (which we were) is a great idea. Set aside a portion of the company to give to employees or partners. The legal pain of changing this after the fact caused the founder not to give out a piece of the pie to employees (even the first employee), and that is a big reason I left.
We were part of a technology incubator. I did not feel it was worth anything. If you are looking for investors, maybe. If you want to grow slowly, definitely not. Basically, it is a way to hand clients to the lawyers and accountants who are chums of the people running the incubator.
Beware of the zombie company. This company is still around, three employees, living month to month. If you asked the founder he would say he is successful. I guess we define success differently. Know when to quit.
I’m rambling here. My best advice is getting a library card. The NOLO books are great. Hire a lawyer, but read these books to know when they are full of shit. Read “The 10 day MBA”, a good overview.
There are hundreds of books on business plans. Get a few and really do the business plan. By really do the plan I mean do not lie to yourself. If you believe your own bullshit you are doomed to fail.

Doug Withau
Monday, December 31, 2001

Hello,

Now this looks like a great forum. I think you guys write better than most authors. I had to respond regarding creating a business. The way I did it goes against creditable business practices. But it has worked for me.

1. I never wanted to start a business again. Burned out the first time. Wanted to do anything but a business with employees. I had zero intention on starting a business.
2. I have always been dead set against VC’s, business plans, borrowing money. I’m allergic to debt and have never been able to do it since I lost $200 in a crooked card game in camp as a 14 yr. old. Although, I did give in and did a business plan when I had enough money and time to do it.
3. I just wanted to create a product myself. I found a programmer by accident and it started from there. We started part time, then went to full time a few months later. I really got into it and my creative juices started flowing. I wanted to develop other parts and now needed a second guy. We got a friend of the first programmer and off we went. At this point there was no budget, no organization, no plan, no product and I loved it. In fact, there wasn’t even any direction! But we were going straight ahead.
4. A few years later I found myself with a product line. Hmmm… Now what do I do? At this point, since I created all of this I figured I might as well sell it. Up to now, I was just creating the product(s) for the sake of creating. I love to develop.
5. Eventually someone heard about us and we did one installation. Then word of mouth and another one came along. For peanuts I might add. I submitted to the search engines early on and people started coming to the site. Three years later we now have a real business in spite of my reluctance to do anything that related to business. I still can’t believe it. I have more employees than I ever wanted. Meaning, more than 0.

We are profitable and debt free without any sales person up until two months ago. We are growing in spite of my resistance to do anything corporate. From my point of view. I built the field and they have come.

Now it’s time to grow the business in a serious way. I might have to get corporate after all.

Stephen Kapit
www.dreamtime.net

Stephen Kapit
Tuesday, January 01, 2002

"I built the field and they have come."

Very similar to my experience. I started creating my own version of CityDesk a couple of months ago, inspired in Manila tools, and only for my own enjoyment. Soon, it growed to a very useful tool, albeit a small one. One day, an old friend of mine called me. "Leo", he said, "I need something to sell, I'm in a hurry." What happened is this guy have its own small company, but things were going down last months. Now we have signed a contract with the biggest telco in my country (not very big, mind you) and we have good prospects for this year. I still haven't received a dime, but hey, if this goes well I'll be managing my own company, from the technical side.

For clarity's sake: I didn't wanted to copy CityDesk. I started before I knew there was a CityDesk. Just a happy coincidence, because the success of CityDesk among the user of this forum gave me more confidence in my own product. And we aren't selling software, the program is a complement to an existing service (web hosting.)

I'm also a beta tester of CityDesk, and still use it for my own personal site :-)

(Now somebody can say "what about eating your own dog food?..." I'm doing that also, just not with my personal site :-))

Leonardo Herrera
Tuesday, January 01, 2002

I'd like to second some of the points Doug and Stephen made:

- Incubators. Don't like them either. Atlanta has one of the biggest in the nation, and I avoided it like the plague. Too many stories of VCs funding companies, only to fire the founder and hijack the original idea.

- Business Plans: IMO, if you're not seeking VC, you don't need one. That's NOT to say you shouldn't think about that stuff and plan accordingly! You just don't need to put it in a single, formal document.

- Debt: Avoid it at all costs. Don't mix your personal money with the company, unless you form a sole proprietorship (which isn't a good idea). Keep separate books. File expense reports as if you were working for MegaCo Inc. Don't tempt the IRS.

- Word of Mouth: Essential to grow organically. One good reference will save you countless $$ in marketing, allowing you to focus on other important aspects. In addition to finding bugs, beta test programs can make your customers feel special and create product loyalty.

Brandon Knowle
Tuesday, January 01, 2002

Consultants say that finding customers is the hardest thing.

My boss said that sales are the most important thing (he said some people think that keeping the books right is the most important thing, but in his opinion if there aren't any sales then there aren't any books worth keeping).

In the beginning, I did the programming and he did Everything Else. Eventually he employed 60 people, in 4 groups: programmers; sales; tech. support; and office (billing, shipping, tax, paperclips,...). Finally he sold to a megacorp and retired.

Christopher Wells
Friday, January 04, 2002

If one were to start his/her own software business, I think it would have to be internet porn related. It seems like all the real potential & money nowadays is in that. Although I doubt if it's really a field I personally could get excited about. Then again, if your an elite JavaScript programmer and you've mastered the window.open() method call, you may have just found your calling. (Note: I'm relying on second hand information that porn sites excessively open new browser windows whenever you try to leave their site.)

On another note, names for porn companies are quite easy to come up with, for example: "Beaver Creek".

Guy Incognito
Friday, January 04, 2002

I totally agree with Patrick, above.

Focus on creating a unique and valuable product or service. Once you've created something unique, you can worry about the business details. It's not always possible, but the "go slow" approach sure worked well for us. I started GraphPad ( http://www.graphpad.com ) more than ten years ago with a very small budget and no business experience. But I had created a product that scientists (my colleagues and friends) found very useful for graphing data and fitting curves. Step by step we build a real company that still is small, but very successful.

Looking back, the hard parts were creating a great product and finding a way to explain why people should buy it (marketing writing). The other stuff isn't so hard. We just made sure that every customer was treated great, so word-of-mouth would be positive.

Harvey Motulsky
Saturday, January 05, 2002

Start small and grow your company step-by-step. Find a distributor who has access to the community you are aiming your products at. That what we do at http://www.devguide.net devGuide.net.

I started publishing books. The next step will be publishing my own software. If the software sells as well as my books, I'll be a happy camper.